Value Creation in Mining: Beyond Basic Productivity

Mining companies need to uncover new sources of productivity to drive value creation.

In characteristic cyclical fashion, the mining industry’s performance has taken a sharp downward turn since peaking in 2010. In response, many mining companies have implemented productivity programs. However, as the supply of low-hanging fruit is exhausted, it has become increasingly necessary to go beyond traditional approaches to productivity improvement.

To achieve breakthrough productivity—the kind that leads to sustainable improvements in margin—executives and operators need to think differently about how their assets are organized and managed, where costs and value accrue, and which activities deliver the most (and least) value to the organization.

Contractor management is one area of expenditure that traditional productivity and lean programs often struggle with, but it’s also one that holds great potential. There are eight value levers that mining companies can apply to enhance the value delivered by contracting.

Successful companies recognize the role that a long-term, integrated productivity program plays in value creation. Yet such programs alone are not enough. Other levers are needed; chief among them is profitable growth, both organic and through acquisitions. Companies can seize new opportunities in value creation by pursuing three important strategies.

Reassess the Project Pipeline. Mining executives will want to re-examine projects not yet underway, perhaps even radically rethinking available options by stepping back to the prefeasibility level of study. This is especially important for projects that were proposed before the global financial crisis and the ensuing economic and market volatility.

Pursue M&A Opportunities. Mining companies' valuation multiples, transaction multiples, and acquisition premiums are all low relative to prior years. Companies with the financial means have engaged in selective acquisitions to take advantage of the current low valuations. Opportunities to strike value-creating deals over the next few years will be especially important for those companies and teams that demonstrate a differentiated ability to add value to acquisitions.

Recognize the Value-Creating Power of Technology. Some mining companies are discovering opportunities to use automation and the industrial Internet to drive greater integration throughout the mining value chain. Next-generation mining techniques are, fundamentally, a means of improving productivity. Autonomous drilling, trucks, and trains allow companies to achieve massive gains in surface mining, as well as greater yields in mining more complex deposits.

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